Freedom to be different and to try new things. At the Folsom Street Fair police provide protection for participants and activities that would surely bring arrests anywhere else.

The future happens there first

It’s the northern end of Silicon Valley

It’s too bad its housing prices are so high and housing policies so contentious.

Here’s a step-by-step guide to how political entrepreneurship has destroyed San Francisco’s housing market:

Step 1: Political Entrepreneurship Distorts The Market: San Francisco property owners convince politicians to artificially restrict the supply of housing. In return for their political support and campaign contributions, they get a government-backed property cartel. Both sides describe it as an effort to “preserve quality of life”, or “avoid Manhattanization”. For good measure, there is talk of protection from “greedy developers” and “speculators”. Political entrepreneurship pays higher returns than property improvements.

Step 2: The Market Adjusts: Both the supply and the demand for housing in San Francisco are affected. The supply is artificially constrained and the city retains its small-city charm and low density, increasing its attractiveness. Rents go up. A lot. Housing costs in the city are now more or less the highest in the country.

Step 3: Political Entrepreneurship Distorts The Market: When one-bedroom apartments run $3,300/month, renters offer politicians political support and campaign contributions to pass rent control laws. There is talk of protection from “greedy landlords”. The market is broken, they argue, and needs price controls to fix it.

Step 4: The Market Adjusts: Tenants with tenure in rent-controlled apartments are enjoying what is in essence a forced monthly subsidy from their landlords, who respond by going to great lengths to evict them so they can raise the rent back to the market price.

Step 5: Political Entrepreneurship Distorts The Market: Long term tenants moan about greedy landlords trying to toss them out and convince politicians to criminalize evictions and even the refusal to offer a lease renewal. The market is broken, they argue, and needs eviction control to fix it. Tenants now have a property right in occupying someone else’s property while forcing their landlords to subsidize their housing consumption.

Step 6: The Market Adjusts: The future arrives, and Airbnb reduces the friction between people with spare bedrooms and people who wish to visit the city. Tenants learn how to monetize their implied rent subsidies.

Step 7: Political Entrepreneurship Distorts The Market: Landlords respond by scouring Airbnb listings, looking for their own properties, eager to use the courts to toss tenants taking “unfair advantage”.

In the end, here’s the scorecard:

Politicians:

Received cash and votes from landlords to advantage them over both their competitors and their customers.

Received cash from tenants to advantage them over their suppliers.

Can boast that high housing prices confirm the city’s desirability and, by extension, their own good governance.

Landlords:

Have effectively suppressed competition but are now burdened with pesky entitled tenants.

Tenants:

Winners: Those in rent-controlled apartments

Losers: Everyone else

Developers:

Locked out of providing housing in a city that desperately needs it.

Conclusion:

Everybody wants a free market, but with judicious use of the legal code to provide themselves with an advantage over everyone else. Politicians are eager to sell to everyone, until everybody loses.